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FORM 20-FPT Indosat Tbk - IITFiled: May 05, 2008 (period: December 31, 2007)

Annual and transition report of foreign private issuers pursuant to sections 13 or 15(d)

Table of Contents

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-FANNUAL REPORT

PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007 Commission file number: 1-3330

PT Indosat Tbk(Exact name of Registrant as specified in its charter)

REPUBLIC OF INDONESIA(Jurisdiction of incorporation or organization)

Indosat BuildingJalan Medan Merdeka Barat, 21

Jakarta 10110—Indonesia(62-21) 3802614

(Address and telephone number of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act.

Title of each Class Name of each exchange on which registered

American Depositary Shares, each representing 50 Series B shares, parvalue Rp100 per share

New York Stock Exchange

Series B shares, par value Rp100 per share New York Stock Exchange*

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annualreport.

Series A shares, par value Rp100 per share 1Series B shares, par value Rp100 per share 5,433,933,499

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ⌧ No �

If this report is annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of the Securities Exchange Act of 1934.

Yes � No ⌧

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes ⌧ No �

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filerand large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ⌧ Accelerated filer � Non-accelerated filer �

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP � International Financial Reporting Standards as issued by the International Accounting Standards Board � Other ⌧

Indicate by check mark which financial statement item the Registrant has elected to follow.

Item 17 ⌧ Item 18 �

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes � No ⌧

Source: PT Indosat Tbk, 20-F, May 05, 2008 Powered by Morningstar® Document Research℠

* The Series B shares were registered in connection with the registration of the American Depositary Shares and are not listed for trading on the New YorkStock Exchange.


Table of ContentsTABLE OF CONTENTS

PageCERTAIN DEFINITIONS, CONVENTIONS AND GENERAL INFORMATION iiFORWARD-LOOKING STATEMENTS iiGLOSSARY iii

PART I Item 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 1Item 2: OFFER STATISTICS AND EXPECTED TIMETABLE 1Item 3: KEY INFORMATION 1Item 4: INFORMATION ON THE COMPANY 23Item 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS 65Item 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 85Item 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 93Item 8: FINANCIAL INFORMATION 95Item 9: THE OFFER AND LISTING 98Item 10: ADDITIONAL INFORMATION 101Item 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 112Item 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 117

PART II Item 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 118Item 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 118Item 15: CONTROLS AND PROCEDURES 118Item 16A: AUDIT COMMITTEE FINANCIAL EXPERT 119Item 16B: CODE OF ETHICS 119Item 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES 119Item 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 120Item 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 120

PART III Item 17: FINANCIAL STATEMENTS 121Item 18: FINANCIAL STATEMENTS 121Item 19: EXHIBITS 121

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Table of ContentsCERTAIN DEFINITIONS, CONVENTIONS AND GENERAL INFORMATION

Unless the context otherwise requires, references in this Form 20-F to the “Company,” “we,” “us,” and “our” are to PT Indosat Tbk and its consolidatedsubsidiaries. All references to “Indonesia” are references to the Republic of Indonesia. All references to the “Government” herein are references to theGovernment of Indonesia. References to “United States” or “U.S.” are to the United States of America. References to “United Kingdom” are to the UnitedKingdom of Great Britain and Northern Ireland. References to “Indonesian rupiah” or “Rp” are to the lawful currency of Indonesia and references to “U.S.dollars” or “US$” are to the lawful currency of the United States. Certain figures (including percentages) have been rounded for convenience, and thereforeindicated and actual sums, quotients, percentages and ratios may differ. Unless otherwise indicated, all of our financial information has been presented inIndonesian rupiah in accordance with Indonesian GAAP.

Solely for the convenience of the reader, certain Indonesian rupiah amounts have been translated into U.S. dollars at specified rates. Unless otherwiseindicated, U.S. dollar equivalent information for amounts in Indonesian rupiah is translated at the Indonesian Central Bank Rate for December 31, 2007, whichwas Rp9,393 to US$1.00. The exchange rate of Indonesian rupiah for U.S. dollars on April 28, 2008 was approximately Rp9,239 to US$1.00. The FederalReserve Bank of New York does not certify for customs purposes a noon buying rate for cable transfers in Indonesian rupiah. No representation is made that theIndonesian rupiah or U.S. dollar amounts shown herein could have been or could be converted into U.S. dollars or Indonesian rupiah, as the case may be, at anyparticular rate or at all. See “Item 3: Key Information—Exchange Rate Information” for further information regarding rates of exchange between Indonesianrupiah and U.S. dollars.

FORWARD-LOOKING STATEMENTS

This Form 20-F contains “forward-looking statements,” as defined in Section 27A of the Securities Act, Section 21E of the U.S. Securities Exchange Actof 1934, as amended (the “Exchange Act”) and within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding ourexpectations and projections for our future operating performance and business prospects. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” andsimilar words identify forward-looking statements. In addition, all statements other than statements of historical facts included in this Form 20-F areforward-looking statements. Although we believe that the expectations reflected in the forward-looking statements herein are reasonable, we can give noassurance that such expectations will prove to be correct. These forward-looking statements are subject to a number of risks and uncertainties, including changesin the economic, social and political environments in Indonesia. This Form 20-F discloses, under “Item 3: Key Information—Risk Factors” and elsewhere,important factors that could cause actual results to differ materially from our expectations.

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Table of ContentsGLOSSARY

The explanations of technical terms set forth below are intended to assist you to understand such terms, but are not intended to be technical definitions.

“3G” third-generation telecommunications services

“analog”

a signal, whether voice, video or data, which is transmitted in similar, or analogous signals; commonlyused to describe telephone transmission and/or switching services that are not digital

“ARPU” Average Revenue Per User, an evaluation statistic for a network operator’s subscriber base

“ATM”

Asynchronous Transfer Mode, the standard packet-switching protocol for transmitting and receiving datavia uniform 53-byte cells, allowing for data transmission speeds surpassing 600 MBps

“backbone”

the highest level in hierarchical network and designed to carry the heaviest traffic. Backbones are eitherswitched (using ATM, frame relay or both) or routed (using only routers and no switches). Thetransmission links between nodes or switching facilities might consist of microwave, submarine cable,satellite, optical fiber or other transmission technology

“bandwidth” the capacity of a communication link

“base station controller” the controlling equipment in a 2G network that coordinates the operation of multiple BTS’s

“base station subsystem”

the section of a cellular telephone network which is responsible for handling traffic and signalingbetween a mobile phone and a network switching subsystem

“BTS”

Base Transceiver Station, the electronic equipment housed in cabinets, including an air-conditioningunit, heating unit, electrical supply, telephone hook-up and auxiliary power supply, that together withantennas comprises a personal communications services facility

“CDMA”

Code Division Multiple Access, a transmission technology where each transmission is sent over multiplefrequencies and a unique code is assigned to each data or voice transmission, allowing multiple users toshare the same frequency spectrum

“churn”

the subscriber disconnections for a given period, determined by dividing the sum of voluntary andinvoluntary deactivations during the period by the average number of subscribers for the same period

“circuit”

the physical connection (or path) of channels, conductors and equipment between two given pointsthrough which an electric current may be established and including both sending and receivingcapabilities

“dBW” decibel referencing one watt

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“digital”

a method of storing, processing and transmitting information through the use of distinct electronic oroptical pulses that represent the binary digits 0 and 1. Digital transmission and switching technologiesemploy a sequence of these pulses to represent information as opposed to the continuously variableanalog signal. Compared to analog networks, digital networks allow for greater capacity, lowerinterference, protection against eavesdropping and automatic error correction

“DLD”

Domestic Long-distance, long-distance telecommunications services within one country, includingtelephone calls and leased line services

“EDGE”

Enhanced Data GSM Environment, a faster version of the Global System for GSM wireless servicedesigned to deliver data at rates up to 384 Kbps thereby enabling the delivery of multimedia and otherbroadband applications to mobile users

“erlang” is a unit of measurement of telephone traffic equal to one hour of conversation

“fiber optic cable”

a transmission medium constructed from extremely pure and consistent glass through which digitalsignals are transmitted as pulses of light. Fiber optic cables offer greater transmission capacity and lowersignal distortion than traditional copper cables

“frame relay”

a form of packet switching using larger packets and requiring more sophisticated error checking thantraditional forms of packet switching (also referred to as “frame net” in our audited consolidatedfinancial statements included elsewhere in this annual report)

“FWA” Fixed Wireless Service, a limited mobility service that links to an area code

“Fixed Telecommunication”

also referred to as “fixed voice service” and includes IDD, DLD and fixed local service. This servicealso includes fixed wireless service

“GPRS”

General Packet Radio Service, a standard for cellular communications which supports a wide range ofbandwidths and is particularly suited for sending and receiving data, including e-mail and other highbandwidth applications

“GSM”

Global System for Mobile Communications, a digital cellular telecommunications system standardizedby the European Telecommunications Standards Institute based on digital transmission and cellularnetwork architecture with roaming in use throughout Europe, in Japan and in various other countries

“IDD”

International Direct Dialing, a telecommunications service that allows a user to make internationallong-distance calls without using an operator

“interconnection”

practice of allowing a competing telecommunications operator to connect its network to the network ornetwork elements of certain other telecommunications operators to enable the termination of trafficoriginated by customers of the competing telecommunications operator’s network to the customers ofthe other telecommunications operator’s network

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“IP VPN”

Internet Protocol Virtual Private Network, a service which enables subscribers to establish the equivalentof an international private automatic branch exchange, or PABX, system, allowing internationalabbreviated dialing and other PABX features

“ISP”

Internet Service Provider, a company that provides access to the Internet by providing the interface tothe Internet backbone

“Kbps” kilobits (103) per second, a measure of digital transmission speed

“LAN”

Local Area Network, a short-distance network designed to connect computers within a localizedenvironment to enable the sharing of data and other communication

“Mbps” megabits (106) per second, a measure of digital transmission speed

“MMS”

Multimedia Messaging Services, a cellular telecommunications system that allows SMS messages toinclude graphics, audio or video components

“media gateway”

a translation unit between telecommunications networks using different standards, such as PSTN, nextgeneration networks and radio access networks

“MIDI” fixed data services, which include multimedia, data communications and Internet

“MPLS”

Multi-Protocol Label Switching, a data communication network platform technology that increases theefficiency of data traffic flow through a traffic management pattern that classifies data based on itsapplication

“network infrastructure”

the fixed infrastructure equipment consisting of optical fiber cable, copper cable, transmissionequipment, multiplexing equipment, switches, radio transceivers, antennas, management informationsystems and other equipment that receives, transmits and processes signals from and to subscriberequipment and/or between wireless networks and fixed networks

“Node B” a BTS for a 3G network

“PSTN”

Public Switched Telephone Network, a fixed telephone network operated and maintained by PerusahaanPerseroan (Persero) PT Telekomunikasi Indonesia Tbk

“RIO”

Reference Interconnect Offer, a regulatory term covering all facilities including interconnection tariffs,technical facilities and other administrative issues offered by one telecommunications operator to othertelecommunications operators for interconnection access.

“roaming”

the cellular telecommunications feature that permits subscribers of one network to use their mobilehandsets and telephone numbers when in a region with cellular network coverage provided by athird-party provider

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RNC

Radio Network Controllers, the controlling equipment in a 3G network that coordinates the operation ofmultiple Node Bs

“SIM” or “SIM card”

Subscriber Identity Module, the “smart” card designed to be inserted into a mobile handset containing allsubscriber-related data such as phone numbers, service details and memory for storing messages

“SMS” Short Message Service, a means to send or receive alphanumeric messages to or from mobile handsets

“VoIP”

Voice over Internet Protocol, a means of sending voice information using Internet protocol. The voiceinformation is transmitted in discrete packets in digital form rather than the traditional circuit-committedprotocols of the PSTN, thereby avoiding the tolls charged by conventional long-distance serviceproviders

“VSAT”

Very Small Aperture Terminal, a relatively small satellite dish, typically 1.5 to 3.8 meters in diameter,placed at users’ premises and used for two-way data communications using satellite

“WAP”

Wireless Application Protocol, an open and global standard of technology platform that enables mobileusers to access and interact with mobile information services such as e-mail, websites, financialinformation, on-line banking information, entertainment (infotainment), games and micro-payments

“x.25” a widely used data packet-switching standard that has been partially replaced by frame relay services

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Table of ContentsPART I

Item 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

Item 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

Item 3: KEY INFORMATION

Selected Financial Data

The following table presents our selected consolidated financial information and operating statistics as of the dates and for each of the periods indicated.This financial information should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements,including the notes thereto, and the other information included elsewhere in this annual report. The year-end financial information is based upon our auditedconsolidated financial statements as of December 31, 2003, 2004, 2005, 2006 and 2007 and for the years ended December 31, 2003, 2004, 2005, 2006 and 2007.Our audited consolidated financial statements as of and for the years ended December 31, 2003, 2004 and 2005 were audited by Prasetio, Sarwoko & Sanjaja andfor the years ended December 31, 2006 and 2007 have been audited by Purwantono, Sarwoko & Sandjaja, the Indonesian member firm of Ernst & Young Global.

In 2004, we changed our method of accounting for liabilities relating to employee benefits and for the realization of gains from certain transactions withPerusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk, or Telkom, which resulted in a restatement of our 2003 consolidated financial statements. In2007, the Government adopted the new cost-based interconnection regime. Under this new regime, we now report operating revenues on a gross basis rather thanon a net based method. Using a net based method, we recognize interconnection income net of interconnection expenses. On a gross basis, we recognizeinterconnection income in operating revenue and interconnection expenses in operating expenses. We have not restated our income statements for the priorperiod to reflect the gross basis, as the new cost-based regime is only effective from January 1, 2007 onwards.

Such audited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Indonesia (“IndonesianGAAP”), which differs in certain significant respects from generally accepted accounting principles in the United States (“U.S. GAAP”). See Notes 41, 42 and43 of our audited consolidated financial statements contained elsewhere herein, which provide a description of certain material differences between IndonesianGAAP and U.S. GAAP, as they relate to us and a reconciliation to the amount of U.S. GAAP net income for each of the years ended December 31, 2005, 2006and 2007 and the amount of U.S. GAAP stockholders’ equity as of December 31, 2006 and 2007.

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For the years ended December 31,

Restated

2003Rp.

2004Rp.

2005Rp.

2006Rp.

2007Rp.

2007US$(1)

(Rp. in billions and US$ in millions, except per share and per ADS) Income Statement Data: Indonesian GAAP:

Operating revenues: Cellular 5,111.9 7,342.1 8,645.0 9,227.5 12.752.5 1,357.6 MIDI 1,245.7 1,483.9 1,694.0 1,902.6 2,168.6 230.9 Fixed telecommunication 1,807.7 1,544.7 1,250.8 1,109.3 1,567.4 166.9 Other services 64.3 59.4 — — — —

Total operating revenues 8,229.6 10,430.1 11,589.8 12,239.4 16,488.5 1,755.4

Total operating expenses 5,881.7 7,232.0 7,937.9 8,840.7 11.968.9 1,274.2 Operating income 2,347.9 3,198.1 3,651.9 3,398.7 4,519.6 481.2 Other income (expense):

Gain on sale of investment in associated company — 286.2 14.6 — — — Interest income 147.7 187.4 215.1 212.8 232.4 24.7 Gain on sale of other long-term investment — 110.9 1.2 — — — Gain (loss) on foreign exchange—net 200.1 (66.1) (79.9) 304.4 (155.3) (16.5)Gain (loss) on change in fair value of

derivatives—net — (170.5) (44.2) (438.8) 68.0 7.2 Amortization of goodwill (252.9) (226.3) (226.4) (226.5) (226.5) (24.1)Financing cost (838.7) (1,097.5) (1,264.8) (1,248.9) (1,428.6) (152.1)Others income (expense)—net (51.2) 99.1 85.1 21.2 (80.0) (8.5)

Total other income (expense)—net (795.0) (876.8) (1,299.2) (1,375.8) (1,590.0) (169.3)

Equity in net income of associated companies 33.8 61.5 0.1 (0.2) — — Minority interest in net income of subsidiaries (22.5) (25.0) (31.4) (36.5) (28.1) (3.0)Income tax benefit (expense)—net 17.8 (724.6) (697.9) (576.1) (859.5) (91.5)Extraordinary item 4,500 — — — — — Net income 6,082.0 1,633.2 1,623.5 1,410.1 2,042.0 217.4 Weighted average number of shares outstanding 5,177,500,000 5,202,760,294 5,253,249,519 5,404,654,859 5,433,933,500 5,433,933,500 Operating income from operations per share 453.5 614.7 695.2 628.8 831.7 0.09 Diluted earning per share 1,173.2 313.6 309.0 258.8 375.8 0.04 Before extraordinary items 305.2 313.6 309.0 258.8 375.8 0.04 After extraordinary items 868.0 — — — — — Basic earnings per share(2) Before extraordinary items 305.6 313.9 309.0 260.9 375.8 0.04 After extraordinary items 1,174.7 313.9 309.0 260.9 375.8 0.04 Dividends declared per share(2) 145.6 154.23 149.32 129.8 — — Dividends declared per share

(in US$)(2)(4) 0.015 0.016 0.017 0.014 — — Dividends declared per ADS (in US$)(2)(3)(4) 0.77 0.80 0.83 0.69 — —

U.S. GAAP:(5) Net income 1,965.5 1,924.8 1,875.6 1,751.0 2,475.8 263.6 Basic earnings per share(2) 379.6 370.0 357.0 324.0 455.6 0.05 Basic earnings per ADS(2)(3) 18,981.2 18,497.5 17,851.4 16,199.3 22,781.0 2.43 Diluted earnings per share 378.9 369.6 353.3 321.9 455.6 0.05 Diluted earnings per ADS 18,945.3 18,481.0 17,663.5 16,097.2 22,781.0 2.43

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As of December 31,

Restated

2003Rp.

2004Rp.

2005Rp.

2006Rp.

2007Rp.

2007US$(1)

(Rp. in billions and US$ in millions)Balance Sheet Data: Indonesian GAAP:

Assets Current assets 7,461.1 6,573.1 7,527.0 5,665.4 10,794.1 1,149.2Due from related parties 33.4 48.0 30.4 23.3 56.5 6.0Deferred tax assets—net 136.6 33.2 44.2 46.6 87.1 9.3Long-term investments 382.9 135.3 3.2 8.8 3.0 0.3Property and equipment—net 14,093.1 17,243.2 21,564.8 24,918.6 30,572.9 3,254.8Goodwill and other intangible assets—net 3,344.9 3,012.6 2,682.6 2,689.8 2,350.5 250.2Other non-current assets 607.2 827.1 934.9 876.2 1,441.1 153.5Net assets 12,187.0 13,349.0 14,491.0 15,402.4 16,842.5 1,788.0

Total assets 26,059.2 27,872.5 32,787.1 34,228.7 45,305.1 4,823.3

Liabilities Current liabilities 3,426.6 4,492.8 5,431.4 6,803.2 11,658.6 1,241.2Due to related parties 38.3 39.1 16.6 29.4 64.9 6.9Deferred tax liabilities—net 1.7 489.1 865.7 1,244.5 1,482.2 157.8Long term debts 2,910.5 1,588.1 1,308.8 1,504.8 4,249.0 452.4Bonds payable 7,268.7 7,524.1 10,161.9 8,734.0 10,088.7 1,074.0Other non current liabilities 226.4 390.3 511.8 510.4 919.6 97.9

Total liabilities 13,872.2 14,523.4 18,296.1 18,826.3 28,463.0 3,030.2Minority interest 147.1 164.5 175.7 200.6 297.4 31.7Capital stock 517.8 528.5 535.6 543.4 543.4 57.8Stockholders’ equity 12,039.9 13,184.6 14,315.3 15,201.8 16,544.7 1,761.4

Total liabilities and stockholders’ equity 26,059.2 27,872.5 32,787.1 34,228.7 45,305.1 4,823.3

Amount of outstanding shares 5,177,500,000 5,285,308,500 5,356,174,500 5,433,933,500 5,433,933,500 5,433,933,500U.S. GAAP:(5)

Total assets 27,352.5 30,045.1 35,414.4 36,990.9 48,840.1 5,199.6Total stockholders’ equity 12,858.7 14,295.0 15,744.3 16,574.8 18,260.6 1,944.1

As of or for the year ended December 31, 2003 2004 2005 2006 2007 Operating Data:(6) Percentage increase (decrease) from prior period:

Operating revenues 21.61% 26.74% 11.12% 5.6% 34.7%Operating income 25.06 36.21 14.19 (6.9) 33.0 Net income 1,685.08 (73.15) (0.60) (13.1) 44.8 Total assets 18.44 6.96 17.63 4.4 32.4 Total stockholders’ equity 15.55 9.51 8.58 6.2 8.8

Operating ratios (expressed as a percentage): Operating income to operating revenues 28.53 30.66 31.51 27.77 27.41 Operating income to stockholders’ equity 19.50 24.26 25.51 22.36 27.32 Operating income to total assets 9.01 11.47 11.14 9.93 9.98 Net profit margin 73.90 15.66 14.01 11.52 12.38 Return on equity 50.52 12.39 11.34 9.28 12.34 Return on assets 23.34 5.86 4.95 4.12 4.51

Financial ratios (expressed as a percentage): Current ratio 217.74 146.30 138.58 83.28 92.59 Debt to equity ratio 86.35 72.03 87.34 75.13 100.89 Total liabilities to total assets 53.23% 52.11% 55.80% 55.00% 62.83

(1) Translated into U.S. dollars based on a conversion rate of Rp9,393 = US$1.00, the Indonesian Central Bank Rate on December 31, 2007. See “—Exchange Rate Information” below.

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(2) Basic earnings per share/ADS, and dividends declared per share/ADS are reported in whole Indonesian rupiah and U.S. dollars. Basic earnings per share/ADS and dividends declared pershare/ADS for all periods presented have been computed based upon the weighted average number of shares outstanding, after considering the effect of the stock split.

(3) The basic earnings and dividends declared per ADS data is calculated on the basis that each ADS represents fifty shares of common stock and does not make allowance for withholding taxto which the holders of the ADSs will be subject.

(4) Calculated using the Indonesian Central Bank Rate on each dividend payment date.(5) U.S. GAAP amounts reflect adjustments resulting principally from differences in the accounting treatment of capitalization of interest expense, capitalization of net foreign exchange

losses, revenue recognition, equity in net income (loss) of associated companies, amortization of goodwill, amortization of land rights, post-retirement benefit cost, pension plan, gain ondifference in value from restructuring transactions of entities under common control and deferred income tax effect of U.S. GAAP adjustments.

(6) Operating data percentages and ratios are computed based on the financial statements prepared under Indonesian GAAP.

Exchange Rate Information

Exchange Rates of Indonesian Rupiah

Per U.S. Dollar Period end Average(1)(2) High Low Period 2003 8,465 8,571 8,908 8,2792004 9,290 8,985 9,415 8,4412005 9,830 9,751 10,310 9,1652006 9,020 9,141 9,395 8,7752007 9,393 9,137 9,479 8,672

October 9,103 9,107 9,171 9,045November 9,376 9,269 9,405 9,078December 9,393 9,337 9,434 9,240

2008 January 9,291 9,406 9,486 9,291February 9,051 9,181 9,269 9,051March 9,217 9,185 9,325 9,072April (through April 28) 9,239 9,185 9,325 9,072

Source: Bank Indonesia

(1) The annual average exchange rates are calculated as averages of each monthly period-end exchange rate.

(2) The monthly average exchange rates are calculated as averages of each daily close exchange rate.

Bank Indonesia is the sole issuer of Indonesian rupiah and is responsible for maintaining the stability of the Indonesian rupiah. Prior to August 14, 1997,Bank Indonesia maintained stability of the Indonesian rupiah through a trading band policy, pursuant to which Bank Indonesia would enter the foreign currencymarket and buy or sell Indonesian rupiah, as required, when trading in the Indonesian rupiah exceeded bid and offer prices announced by Bank Indonesia on adaily basis. On August 14, 1997, Bank Indonesia terminated the trading band policy and permitted the exchange rate for the Indonesian rupiah to float without anannounced level at which it would intervene. The exchange rate was Rp9,830 = US$1.00, Rp9,020 = US$1.00 and Rp9,393 = US$1.00 as of December 31, 2005,2006 and 2007, respectively. On April 28, 2008, the exchange rate was Rp9,239 per U.S. dollar. The Federal Reserve Bank of New York does not certify forcustoms purposes a noon buying rate for cable transfers in Indonesian rupiah.

The Indonesian rupiah has been and in general is freely convertible or transferable. Bank Indonesia has introduced regulations to restrict the movement ofIndonesian rupiah from banks within Indonesia to offshore banks without underlying trade or investment reasons, thereby limiting offshore trading to existingsources of liquidity. In addition, Bank Indonesia has the authority to request information and data concerning the foreign exchange activities of all people andlegal entities that are domiciled, or plan to reside, in Indonesia for at least one year.

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Table of ContentsForeign Exchange

Foreign exchange controls were abolished in 1971, and Indonesia now maintains a liberal foreign exchange system that permits the free flow of foreignexchange. Capital transactions, including remittances of capital, profits, dividends and interests, are free from exchange controls. A number of regulations,however, have an impact on the exchange system. Bank Indonesia recently introduced regulations to restrict the movement of Indonesian rupiah from bankswithin Indonesia to offshore banks without underlying trade or investment reasons, thereby limiting offshore trading to existing sources of liquidity. In addition,Bank Indonesia has authority to request information and data concerning the foreign exchange activities of all people and legal entities that are domiciled inIndonesia or plan to domicile in Indonesia for at least one year.

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Table of ContentsRISK FACTORS

Risks Relating to Indonesia

We are incorporated in Indonesia and substantially all of our operations, assets and customers are located in Indonesia. As a result, future political,economic, legal and social conditions in Indonesia, as well as certain actions and policies which the Government may, or may not, take or adopt may have amaterial adverse effect on our business, financial condition, results of operations and prospects.

Domestic, regional or global economic changes may adversely affect our business

The economic crisis which affected Southeast Asia, including Indonesia, from mid-1997 was characterized in Indonesia by, among other effects, currencydepreciation, negative economic growth, high interest rates, social unrest and extraordinary political events. These conditions had a material adverse effect onIndonesian businesses, including a material adverse effect on the quality and growth of our customer base and service offerings, which depend on the health ofthe overall Indonesian economy. In addition, the economic crisis resulted in the failure of many Indonesian companies to meet their debt obligations. ManyIndonesian companies have not fully recovered from the economic crisis, and many such companies are still in the process of restructuring their debt obligationsor are engaged in disputes arising from defaults under their debt obligations. Another economic downturn in Indonesia could lead to additional defaults byIndonesian borrowers and could have a material adverse effect on our business, financial condition and results of operations and prospects. In addition, recent oilprice hikes, the subprime mortgage default crises in the U.S. market and potential food shortages may cause an economic slowdown in many countries, includingIndonesia. The current high inflation rate in Indonesia may also result in less disposable income available to consumers to spend or cause consumer purchasingpower to decrease, which may reduce consumer demand for telecommunication services, including our services.

A loss of investor confidence in the financial systems of emerging and other markets, or other factors, may cause increased volatility in the Indonesianfinancial markets and a slowdown in economic growth or negative economic growth in Indonesia. Any such increased volatility or slowdown or negative growthcould have a material adverse effect on our business, financial condition and results of operations and prospects.

Political and social instability may adversely affect us

Since 1998, Indonesia has experienced a process of democratic change, resulting in political and social events that have highlighted the unpredictablenature of Indonesia’s changing political landscape. These events have resulted in political instability as well as general social and civil unrest on certainoccasions in the past few years. As a relatively new democratic country, Indonesia continues to face various socio-political issues and has, from time to time,experienced political instability and social and civil unrest. Such instances of unrest have highlighted the unpredictable nature of Indonesia’s changing politicallandscape. Indonesia also has many political parties, without any one party winning a clear majority to date, which has in part resulted in Indonesia having fourdifferent presidents since 1998. Although parliamentary and presidential elections proceeded smoothly in 2004, increased political activity can be expected in2008 with the scheduled presidential election in 2009. These events have resulted in political instability, as well as general social and civil unrest on certainoccasions in recent years.

For instance, in June 2001, demonstrations and strikes affected at least 19 cities after the Government mandated a 30.0% increase in fuel prices. Similardemonstrations occurred in January 2003, when the Government again tried to increase fuel prices, as well as electricity rates and telephone charges. In bothinstances, the Government was forced to drop or substantially reduce the proposed increases.

Regional political instability remains problematic. In April 2006, hundreds of people were involved in a violent protest directed at Freeport’s gold miningoperations in the province of Papua and there have been

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Table of Contentsnumerous clashes between supporters of separatist movements and the Indonesian military. In recent years, political instability in Maluku and Poso, a district inthe province of Central Sulawesi, has intensified and clashes between religious groups in these regions have resulted in thousands of casualties and displacedpersons. Political and related social developments in Indonesia have been unpredictable in the past, and we cannot assure you that social and civil disturbanceswill not occur in the future and on a wider scale, or that any such disturbances will not, directly or indirectly, have a material adverse effect on our business,financial condition, results of operations and prospects.

Indonesia is located in an earthquake zone and is subject to significant geological risk that could lead to social unrest and economic loss

Many parts of Indonesia are vulnerable to natural disasters such as earthquakes, tsunamis, floods, volcanic eruptions as well as droughts, power outages orother events beyond our control. In recent years, several natural disasters have occurred in Indonesia (in addition to the Asian tsunami in 2004), including atsunami in Pangandaran in West Java in 2006, the earthquake in Jogyakarta in central Java in 2006 and the hot mud eruption and subsequent flooding in EastJava in 2006. More recently, in February 2007, Jakarta experienced significant flooding. Government funding requirements to areas affected by the Asiantsunami in late December 2004 and such other natural disasters, as well as increasing oil prices, may cause inflation and may cause the Government’s fiscaldeficit to increase, which may affect the Government’s ability to meet its obligations on its sovereign debt. Any such failure on the part of the Government, ordeclaration by it of a moratorium on its sovereign debt, could trigger an event of default under numerous private-sector borrowings including those of ourcompany, thereby materially and adversely affecting our business.

In addition, we cannot assure you that future geological or meteorological occurrences will not have more of an impact on the Indonesian economy. Asignificant earthquake, other geological disturbance or weather-related natural disaster in any of Indonesia’s more populated cities and financial centers couldseverely disrupt the Indonesian economy and undermine investor confidence, thereby materially and adversely affecting our business, financial condition, resultsof operations and prospects.

Terrorist activities in Indonesia could destabilize the country, thereby adversely affecting our business, financial condition, results of operations andprospects

Several bombing incidents have taken place in Indonesia, most significantly in October 2002 in Bali, a region of Indonesia previously considered safefrom the unrest affecting other parts of the country. Other bombing incidents, although on a lesser scale, have also been committed in Indonesia on a number ofoccasions over the past few years, including at shopping centers and places of worship. In April 2003, a bomb exploded outside the main United Nations buildingin Jakarta, and in May 2003, a bomb exploded in front of the domestic terminal at Jakarta International Airport. In August 2003, a bomb exploded at the JWMarriott Hotel in Jakarta, and in September 2004, a bomb exploded in front of the Australian embassy in Jakarta. More recently, bomb blasts in Central Sulawesikilled at least 21 people and injured at least 60 people. On October 1, 2005, bomb blasts in Bali killed at least 23 people and injured at least 101 others.Indonesian, Australian and U.S. government officials have indicated that these bombings may be linked to an international terrorist organization. Demonstrationshave taken place in Indonesia in response to plans for and subsequent to U.S., British and Australian military action in Iraq. Further terrorist acts may occur in thefuture and may be directed at foreigners in Indonesia. Violent acts arising from, and leading to, instability and unrest could destabilize Indonesia and theGovernment and have had, and may continue to have, a material adverse effect on investment and confidence in, and the performance of, the Indonesianeconomy, and may have a material adverse effect on our business, financial condition, results of operations and prospects.

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Table of ContentsIndonesia relies heavily on funding from multinational lenders, and the inability to obtain such funding would have adverse consequences for Indonesia andus

The World Bank has been an important source of funding for Indonesia. The World Bank has expressed concern that the slow pace of institutional reformsin Indonesia, as well as the Government’s decentralization plan and particularly the empowerment of provincial governments to borrow, could lead to the centralGovernment’s inability to service its debts. The World Bank’s lending program is subject to regular compliance reviews and can be reduced or withdrawn atanytime. As of December 31, 2007, the Government owed approximately US$8.4 billion to the World Bank.

The members of the Paris Club, and the former Consultative Group in Indonesia, or CGI, have also been important sources of funding for the Government.The Paris Club is an informal voluntary group of creditor countries that seeks to coordinate solutions for payment difficulties experienced by debtor nations. TheCGI was a group of donor countries and international organizations which met annually to coordinate donor assistance to Indonesia. The Government has severaltimes successfully rescheduled its foreign debt. However, from 2004, the Paris Club has publicly stated that it will no longer reschedule debt owed to itsmembers or to other creditors by the Government as a result of the Government’s decision to end the International Monetary Fund program. In January 2007, theGovernment decided to end its participation with the CGI and has announced its intention to conduct direct discussions with creditors regarding theGovernment’s external debt. As of December 31, 2007, the Government’s outstanding external debt was US$80.6 billion.

The Government has recently issued several domestic retail, as well as international, bonds and may continue to acquire funds from the commercialmarkets in order to fulfill its financial needs. Given the Government’s significant fiscal deficit and modest foreign exchange reserves, the inability of theGovernment to obtain adequate funding as a result of a reduction or elimination of funding from the World Bank, other institutions or countries or throughcommercial markets could have adverse economic, political and social consequences in Indonesia, which, in turn, could have a material adverse effect on ourbusiness, financial condition, results of operations and prospects. We cannot assure you that the Government will be able to obtain alternative funding to replacethe funding previously provided by its current lenders or to supplement a reduction or elimination of funding from other sources.

Labor activism and unrest may adversely affect our business

In March 2003, the Government enacted a manpower law and implementing regulations allowing employees to unionize. The liberalization of regulationspermitting the formation of labor unions combined with weak economic conditions has resulted, and will likely continue to result in, labor unrest and activism inIndonesia. The Government proposed to amend the manpower law in a manner which, in the view of labor activists, would result in reduced pension benefits, theincreased use of outsourced employees and prohibitions on unions to conduct strikes. The proposal has been suspended and the new Government regulationaddressing lay-offs of workers has not yet become effective. Labor unrest and activism could disrupt our operations and could adversely affect the financialcondition of Indonesian companies in general and the value of the Indonesian rupiah relative to other currencies, which could have a material adverse effect onour business, financial condition, results of operations and prospects.

Depreciation in the value of the Indonesian rupiah may adversely affect our business, financial condition, results of operations and prospects

One of the most important immediate causes of the economic crisis which began in Indonesia in mid-1997 was the depreciation and volatility of the valueof the Indonesian rupiah, as measured against other currencies, such as the U.S. dollar. Although the Indonesian rupiah has appreciated considerably from its lowpoint of approximately Rp17,000 per U.S. dollar in 1998 to less than Rp9,500 per U.S. dollar in 2007, it may experience volatility again in the future. TheIndonesian rupiah has generally been freely convertible and transferable (except that Indonesian banks may not transfer Indonesian rupiah to persons outside ofIndonesia who lack a bona fide trade or investment purpose). However, from time to time, Bank Indonesia has intervened in the

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Table of Contentscurrency exchange markets in furtherance of its policies, either by selling Indonesian rupiah or by using its foreign currency reserves to purchase Indonesianrupiah. We cannot assure you that the current floating exchange rate policy of Bank Indonesia will not be modified, that further depreciation of the Indonesianrupiah against other currencies, including the U.S. dollar, will not occur, or that the Government will take additional action to stabilize, maintain or increase thevalue of the Indonesian rupiah, or that any of these actions, if taken, will be successful.

Modification of the current floating exchange rate policy could result in significantly higher domestic interest rates, liquidity shortages, capital or exchangecontrols or the withholding of additional financial assistance by multinational lenders. This could result in a reduction of economic activity, an economicrecession, loan defaults or declining usage by our subscribers, and as a result, we may also face difficulties in funding our capital expenditures and inimplementing our business strategy. Any of the foregoing consequences could have a material adverse effect on our business, financial condition, results ofoperations and prospects.

We may not be able to manage successfully our foreign currency exchange risk

Changes in exchange rates have affected and may continue to affect our financial condition and results of operations. Most of our debt obligations aredenominated in Indonesian rupiah and a majority of our capital expenditures are, denominated in U.S. dollars. Most of our revenues are denominated inIndonesian rupiah. We may also incur additional long-term indebtedness in currencies other than the Indonesian rupiah, including the U.S. dollar, to financefurther capital expenditures.

We currently hedge a portion of our foreign currency exposure principally because our annual U.S. dollar-denominated operating revenues are less thanthe sum of our U.S. dollar-denominated operating expenses and annual payments of U.S. dollar-denominated principal and interest payments. In an effort tomanage our foreign currency exposure and lower our overall funding costs, we entered into several foreign currency swap contracts with three separateinternational financial institutions in 2005. In addition, we entered into five foreign currency swap contracts with four international financial institutions in 2006.In 2007, we also entered into seven currency forward contracts with three international financial institutions. For these contracts, we pay either a LIBOR-linkedfloating rate or a fixed rate premium. As a result of these contractual arrangements, we reduced our foreign currency risk exposure, but increased our exposure toLIBOR-based interest rate risk. We cannot assure you that we will be able to manage our exchange rate risk successfully in the future or that we will not beadversely affected by our exposure to exchange rate risk.

Downgrades of credit ratings of the Government or Indonesian companies could adversely affect our business

Beginning in 1997, certain recognized statistical rating organizations, including Moody’s Investors Service, Inc. (“Moody’s”), and Standard & Poor’sRating Services (“Standard & Poor’s”), downgraded Indonesia’s sovereign rating and the credit ratings of various credit instruments of the Government and alarge number of Indonesian banks and other companies. Indonesia’s sovereign foreign currency long-term debt is currently rated “Ba3 outlook” by Moody’s,“BB—” by Standard & Poor’s and “BB” by Fitch Ratings (“Fitch”). These ratings reflect an assessment of the Government’s overall financial capacity to pay itsobligations and its ability or willingness to meet its financial commitments as they become due.

We cannot assure you that Moody’s, Standard & Poor’s, Fitch or any other statistical rating organization will not downgrade the credit ratings of Indonesiaor Indonesian companies, including us. Any such downgrade could have an adverse impact on liquidity in the Indonesian financial markets, the ability of theGovernment and Indonesian companies, including us, to raise additional financing and the interest rates and other commercial terms at which such additionalfinancing is available. Interest rates on our floating rate Indonesian rupiah-denominated debt would also likely increase.

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Table of ContentsIndonesian accounting standards differ from those in the United States

We prepare our consolidated financial statements in accordance with Indonesian GAAP, which differs from U.S. GAAP. As a result, our consolidatedfinancial statements and reported earnings could be significantly different from those that would be reported under U.S. GAAP. We have prepared areconciliation to U.S. GAAP of our consolidated net income for each of the years ended December 31, 2005, 2006 and 2007 and our consolidated stockholders’equity as of December 31, 2006 and 2007, which reconciliation appears in Note 42 to our consolidated financial statements included elsewhere in this annualreport.

We are incorporated in Indonesia, and it may not be possible for investors to effect service of process or enforce judgments, on us within the United States

We are a limited liability company incorporated in Indonesia, operating within the framework of Indonesian laws relating to foreign capital investedcompanies, and all of our significant assets are located in Indonesia. In addition, several of our Commissioners and substantially all of our Directors reside inIndonesia and a substantial portion of the assets of such persons is located outside the United States. As a result, it may be difficult for investors to effect serviceof process, or enforce judgments, on us or such persons within the United States, or to enforce against us or such persons in the United States, judgmentsobtained in U.S. courts.

We have been advised by our Indonesian legal advisor that judgments of U.S. courts, including judgments predicated upon the civil liability provisions ofthe U.S. federal securities laws or the Securities laws of any state within the United States, are not enforceable in Indonesian courts, although such judgmentscould be admissible as non-conclusive evidence in a proceeding on the underlying claim in an Indonesian court. There is doubt as to whether Indonesian courtswill enter judgments in original actions brought in Indonesian courts predicated solely upon the civil liability provisions of the U.S. federal securities laws or thesecurities laws of any state within the United States. As a result, the claimant would be required to pursue claims against us or such persons in Indonesian courts.

Risks Relating to Our Business

We depend on interconnection agreements with our competitors’ cellular and fixed-line telephone networks

We are dependent on interconnection agreements with our competitors’ cellular and fixed-line telephone networks and associated infrastructure for thesuccessful operation of our business. If any disputes involving such interconnection arrangements arise, whether due to a failure by a counterparty to perform itscontractual obligations or for any other reason, one or more of our services may be delayed, interrupted or stopped, the quality of our services may be lowered,our customer churn rates may increase or our interconnection rates may increase, all of which could have a material adverse effect on our business, financialcondition, results of operations and prospects.

In addition, the Government established a new interconnection regime in February 2006, which became effective on January 1, 2007. This new regimedefines operators controlling more than 25% of the market share as “dominant operators” and requires such operators to extend interconnection offers to othertelecommunications operators to be approved by the Government. In addition, the new interconnection regime established a new cost-based interconnection tariffscheme under which the operator of the network on which calls terminate would determine the interconnection charges to be received based upon a formula setforth in Regulation No. 8 / Per / M.KOMINFO / 02 / 2006. The new formula became effective as of January 1, 2007 and, as a result, operators were required tocharge calls based on the cost of carrying such calls. Such interconnection charges must be calculated and submitted to the DGPT for approval in the form of anReference Interconnection Offer (“RIO”). By the end of 2006, the Government approved the RIOs of PT Telkom, PT Telkomsel, and us. On April 11, 2008, theDGPT approved RIOs from PT Telkom, PT Telkomsel, and us which amend our previous RIOs. Recently, all telecommunications operators have entered intonew umbrella agreements for interconnection. However, each operator must enter into an additional agreement to interconnect with another operator, which maylead to delays in the implementation of the new interconnection regulations. Failure to enter into such agreements may decrease our operating revenues receivedfrom, or increase the fees we pay to, other telecommunications operators for interconnection.

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Table of ContentsWe operate in a legal and regulatory environment that is undergoing significant reforms. These reforms may result in increased competition, which mayresult in reduced margins and operating revenues, among other things, all of which may have a material adverse effect on us

The regulatory reform of the Indonesian telecommunications sector, which was initiated by the Government in 1999, has to a certain extent resulted in theliberalization of the telecommunications industry, including facilitation of new market entrants and changes to the competitive structure of thetelecommunications industry. However, in recent years, the volume and complexity of regulatory changes has created an environment of considerable regulatoryuncertainty. In addition, as the reform of the Indonesian telecommunications sector continues, other competitors, potentially with greater resources than us, mayenter the Indonesian telecommunications sector and compete with us in providing telecommunications services. In January 2007, the Government implementednew interconnection regulations and a new five-digit access code system for VoIP services. See “Risks Relating to Our Fixed Telecommunication ServicesBusiness—VoIP usage is increasing, and certain customers use VOIP services rather than traditional international long-distance services, which may continue tohave a material adverse impact on our fixed telecommunications services business.” In connection with the Government’s implementation of interconnectionregulations, we face considerable uncertainty in respect of interconnection tariffs, which constitutes one of our income resources. This income is gained fromtelecommunication traffic transmitted by other operators from and to our network. The Government annually determines the interconnection tariff formula usedto calculate interconnection costs which should apply to all telecommunication operators in determining the amount of interconnection costs. The interconnectiontariff formula determined by the Government has tended to yield declining interconnection costs year after year. Any decrease in the amount of interconnectioncosts might reduce our revenue and also our costs for inter-operator traffic. The reduction in the amount of revenue and interconnection cost would be mainlydetermined by the traffic volumes among operators. In the future, the Government may announce or implement other regulatory changes that may adverselyaffect our business and our existing licenses. We cannot assure you that we will be able to compete successfully with other domestic and foreigntelecommunications operators or that regulatory changes, amendments or interpretations of current or future laws and regulations promulgated by theGovernment will not have a material adverse effect on our business, financial condition, results of operations and prospects.

A failure in the continuing operations of our network, certain key systems, gateways to our network or the networks of other network operators couldadversely affect our business, financial condition, results of operations and prospects

We depend to a significant degree on the uninterrupted operation of our network to provide our services. For example, we depend on access to the PSTNfor termination and origination of cellular telephone calls to and from fixed-line telephones, and a significant portion of our cellular and internationallong-distance call traffic is routed through the PSTN. The limited interconnection facilities of the PSTN available to us have adversely affected our business inthe past and may adversely affect our business in the future.

Because of interconnection capacity constraints, our cellular customers have at times experienced blocked calls. We cannot assure you that theseinterconnection facilities can be increased or maintained at current levels.

We also depend on certain technologically sophisticated management information systems and other systems, such as our customer billing system, toenable us to conduct our operations. In addition, we rely to a certain extent on interconnection to the networks of other telecommunications operators to carrycalls from our customers to the customers of fixed-line operators and other cellular operators, both within Indonesia and overseas. Our network, including ourinformation systems, information technology and infrastructure and the networks of other operators with whom our subscribers interconnect, are vulnerable todamage or interruptions in operation from a variety of sources including earthquake, fire, flood, power loss, equipment failure, network software flaws,transmission cable disruption or similar events. For example, our telecommunications control and information technology back-up facilities are highlyconcentrated with our headquarters and principal operating and tape back-up storage facilities located at two sites in Jakarta. Any failure that results in aninterruption of our operations or of the provision of any service, whether from operational disruption, natural disaster or otherwise,

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Table of Contentscould damage our ability to attract and retain subscribers, cause significant subscriber dissatisfaction and adversely affect our business, financial condition,results of operations and prospects.

As a dominant IDD telecommunications operator, our retail tariffs for fixed and cellular services are subject to Government approval and may be adjusted toour disadvantage, thereby resulting in an adverse effect on us

Pursuant to regulations issued in February 2006, the Government established a cost-based interconnection scheme with a formula-based guideline fortelecommunications operators. Under this tariff scheme, IDD telecommunications operators, such as ourselves, controlling more than 25% of the market shareare classified as “dominant operators,” and are required to submit a Reference Interconnection Offer, or RIO, to the Government for approval. The RIO mustdisclose the type of interconnection services offered by the telecommunications operator and set forth the tariffs charged for each offered service. TheGovernment may assess and periodically review the RIOs proposed by dominant operators for approval. In contrast, telecommunications operators which are notdesignated as dominant operators may simply notify the Government regarding their tariffs and may implement such tariffs for its customers withoutGovernment approval. The new interconnection tariff scheme took effect on January 1, 2007. The disparity in the treatment of dominant and non-dominanttelecommunications operators may create opportunities for new entrants in the telecommunications industry, such as providing them with increased flexibility toestablish lower tariffs and offer lower pricing terms to their customers, which could adversely affect our business, financial condition, results of operations andprospects.

Our failure to react to rapid technological changes could adversely affect our business

The telecommunications industry is characterized by rapid and significant changes in technology. We may face increasing competition from technologiescurrently under development or which may be developed in the future. Future development or application of new or alternative technologies, services orstandards could require significant changes to our business model, the development of new products, the provision of additional services and substantial newinvestments by us. For example, the development of fixed-mobile convergence technology, which allows a call that originates on a cellular handset to bypass acellular network and instead be carried over a fixed-line telephone network, could adversely affect our business. New products and services may be expensive todevelop and may result in the introduction of additional competitors into the marketplace. We cannot accurately predict how emerging and future technologicalchanges will affect our operations or the competitiveness of our services. We cannot assure you that our technologies will not become obsolete, or be subjected tocompetition from new technologies in the future, or that we will be able to acquire new technologies necessary to compete in changed circumstances oncommercially acceptable terms.

We may be unable to obtain adequate financing to remain competitive in the telecommunications industry in Indonesia

The delivery of telecommunications services is capital intensive. In order to be competitive, we must continually expand, modernize and update ourtechnology, which involves substantial capital investment. During 2006 and 2007, our consolidated capital expenditures totalled Rp6,921 billion and Rp9,726billion, respectively. During 2008, we plan capital expenditures of approximately US$1.2 billion, which includes approximately US$200.0 million for our newPalapa-D satellite and approximately US$1.0 billion for expansion of cellular coverage, capacity enhancement and in non-cellular network areas and our otherbusiness segments. Our ability to fund capital expenditures in the future will depend on our future operating performance, which is subject to prevailingeconomic conditions, levels of interest rates and financial, business and other factors, many of which are beyond our control, and upon our ability to obtainadditional external financing. We cannot assure you that additional financing will be available to us on commercially acceptable terms, or at all. In addition, wecan only incur additional financing in compliance with the terms of our debt agreements. Accordingly, we cannot assure you that we will have sufficient capitalresources to improve or expand our cellular telecommunications infrastructure or update our other technology to the extent necessary to remain competitive inthe Indonesian telecommunications market, which would have a material adverse effect on our business, financial condition, results of operations and prospects.

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Table of ContentsWe may be unable to finance a change of control offer

Upon the occurrence of specified change of control events, the indentures of our Guaranteed Notes due 2010 and Guaranteed Notes due 2012 (the “Notes”)and Goldman Sachs International (GSI) Loan will require us to offer to repurchase all outstanding Notes for cash at a price of 101% of their principal amountplus accrued interest. In connection with our repurchase of the Notes, we may also be required to repay all or a portion of our bank debt or other debt, if suchdebt has a similar change of control provision, or obtain consents from the lenders of our outstanding debt to permit the repurchase of the Notes. If we are unableto repay such debt or obtain such consents, we can either repurchase the Notes in violation of these other debt agreements or choose not to repurchase the Notes.The failure to repurchase the Notes would constitute an event of default under the Indenture.

On November 19, 2007, the Supervising Committee For Business Competition (“KPPU”) decided that Temasek, jointly with Singapore TechnologiesTelemedia Pte Ltd (“STT”), STT Communications Ltd, Asia Mobile Holding Company Pte. Ltd., Indonesia Communications Limited (“ICL”), IndonesiaCommunications Pte. Ltd. (“ICLS”), Singapore Telecommunications Ltd. (“SingTel”), and Singapore Telecom Mobile Pte. Ltd. (“SingTel Mobile”), breachedArticle 27(a) of Law No.5 / 1999 and ordered Temasek, jointly with its affiliated entities, STT, STT Communications Ltd., Asia Mobile Holding Company Pte.Ltd., ICL, ICLS, SingTel and SingTel Mobile to discontinue their share ownership in either Telkomsel or us within two years, effective from the date thejudgment becomes final and binding. Article 27(a) states that business agents are prohibited from owning majority shares in a number of similar companieswhich conduct business in the same market if such ownership results in one or a group of business agents controlling over 50% of the market share of one kind ofgood or service. Temasek and other relevant parties filed an appeal against KPPU’s judgment in the Central Jakarta District Court and the South Jakarta DistrictCourt, respectively, however, it is unclear whether the appeals court will nullify or confirm KPPU’s judgment. See “—Item 8: Financial Information—LegalProceedings.” Temasek and its affiliated entities currently own 40.81% of our total outstanding shares through its indirect subsidiaries, ICL and ICLS and 35.0%of the total outstanding shares in Telkomsel through SingTel. In the event that KPPU’s judgment is affirmed and STT and its subsidiaries, ICL and ICLS, chooseto sell their shares in us rather than SingTel selling its shares in Telkomsel, this may result in a change of control under the indentures of our Guaranteed Notes2010, Guaranteed Notes 2012 and under our Goldman Sachs International Loan Facility agreement. For information on other change of control risk factors, seealso “—We face risks in connection with the Business Competition Supervisory Commission’s verdict on Temasek’s cross ownership.” If a change of controloccurs, we cannot assure you that we would have sufficient funds available at that time to make any debt repayment (including a repurchase of the Notes) asdescribed above.

The Government is the majority shareholder of our major competitors Telkom and PT Telekomunikasi Selular, or Telkomsel, and the Government ofSingapore is a substantial shareholder of Telkomsel. Both governments may give priority to Telkom’s and Telkomsel’s businesses over ours

As of March 31, 2008, the Government had a 14.29% equity stake in us and owns the Series A share, which has special voting rights and veto rights overcertain strategic matters under our Articles of Association, including the decision to liquidate us and also permits the Government to appoint one Director andone Commissioner. We understand that the Government and ICL, a subsidiary of STT, had entered into a Shareholders’ Agreement that permitted theGovernment to appoint two nominees to each of the Board of Commissioners and the Board of Directors and ICL to appoint a simple majority of our Board ofCommissioners and Board of Directors. We understand that the Shareholders’ Agreement ceased to be in effect on December 31, 2005.

As of December 31, 2007, the Government also had a 51.0% equity stake in Telkom, which is our foremost competitor in fixed IDD telecommunicationsservices. As of the same date, Telkom owns a 65.0% interest in Telkomsel, one of our two main competitors in the provision of cellular services. The percentageof the Government’s ownership interest in Telkom is significantly greater than its ownership interest in us. We cannot assure you that significant Governmentpolicies and plans will support our business or that the Government will

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Table of Contentstreat Telkom and us equally when implementing future decisions, or when exercising regulatory power over the Indonesian telecommunications industry.

Temasek Holding (Private) Limited, which is owned by the Government of Singapore through its Ministry of Finance, is indirectly our major shareholder.Temasek Holding (Private) Limited, through its publicly listed subsidiary, SingTel, holds a substantial beneficial interest in Telkomsel through SingTel Mobile.We cannot assure you that significant Government of Singapore policies and plans will support our business.

Our controlling shareholders’ interests may differ from those of our other shareholders

In December 2002, the Government sold 41.9% of our outstanding shares to ICL, a Mauritius company owned and controlled by STT. ICL, and itscontrolling shareholder, have the ability to exercise a controlling influence over our business and may cause us to take actions that are not in, or may conflictwith, our or our creditors’ best interests, including matters relating to our management and policies. Although nominees of ICL hold positions on our Board ofCommissioners and Board of Directors, we cannot assure you that our controlling shareholder will elect or be able to influence our business in a way that benefitsour other shareholders or our creditors.

We rely on key management personnel, and our business may be adversely affected by any inability to recruit, train, retain and motivate key employees

We believe that our current management team contributes significant experience and expertise to the management of our business. The continued successof our business and our ability to execute our business strategies in the future will depend in large part on the efforts of our key personnel. There is a shortage ofskilled personnel in the telecommunications industry in Indonesia and this shortage is likely to continue. As a result, competition for certain specialist personnelis intense. In addition, as new market entrants begin or expand operations in Indonesia, certain of our key employees may leave their current positions. Ourinability to recruit, train, retain and motivate key employees could have a material adverse effect on our business, financial condition, results of operations andprospects.

We face risks in connection with the KPPU’s judgment on Temasek’s cross ownership

On November 19, 2007, KPPU decided on the basis of monopoly and anti-trust concerns that Temasek, jointly with STT, STT Communications Ltd, AsiaMobile Holding Company Pte. Ltd., ICL, ICLS, SingTel, and SingTel Mobile, breached Article 27(a) of Law No. 5 / 1999 and ordered Temasek, jointly withSTT, STT Communications Ltd., Asia Mobile Holding Company Pte. Ltd., ICL, ICLS, SingTel and SingTel Mobile to discontinue and divest their shareownership in either Telkomsel or us within two years, effective from the date the judgment becomes final and binding. Temasek and other relevant parties havefiled an appeal against KPPU’s judgment in the Central Jakarta District Court and the South Jakarta District Court, respectively, however, it is unclear whetherthe appeals court will nullify or confirm KPPU’s judgment. See “Item 8: Financial Information—Legal Proceedings.” Temasek and its affiliated entities currentlyown 40.81% of our total outstanding shares through its indirect subsidiaries, ICL and ICLS and 35.0% of the total outstanding shares in Telkomsel throughSingTel. In the event that KPPU’s judgment is affirmed and STT and its subsidiaries, ICL and ICLS, choose to sell their shares in us rather than SingTel sellingits shares in Telkomsel, this may result in a change of control under several of our financing facilities. See “—We may be unable to finance a change of controloffer.” We cannot assure you that if STT and its subsidiaries, ICL and ICLS, choose to sell their shares in us that the resulting change of control of 40.81% of ourtotal outstanding shares, the loss of a strategic partnership with STT or the potential loss of management and board appointees from STT will not have an adverseaffect on our credit rating. Any downgrade of our credit rating by Moody’s, Standard & Poor’s, Fitch or any other statistical rating organization could have anadverse impact on our ability to raise additional financing and the interest rates and other commercial terms at which such additional financing may be available.In addition, we cannot assure you that any such change of control and potential loss of management and board appointees will not have an adverse impact on theimplementation or execution of our business strategies in the future.

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Table of ContentsMoreover, the KPPU’s November 19, 2007 decision has triggered class action suits against us in the Central Jakarta District Court as well as the District

Courts in Tangerang and Bekasi. In each of the Central Jakarta and Tangerang proceedings, plaintiffs are claiming damages of up to Rp30,808.7 billion againstall defendants, while in the Bekasi proceedings, plaintiffs are claiming damages of up to Rp1,231.7 billion against all defendants. In the event KPPU’s judgmentis affirmed and these class actions are successful, we may be liable for payment of substantial damages, which could have a material adverse affect on ourbusiness, financial condition and results of operations.

If we are found liable for price fixing by the Indonesian Anti-Monopoly Committee, we may be subject to substantial liability which could lead to a decreasein our revenue and affect our business, reputation and profitability.

On November 1, 2007, the KPPU issued a decision regarding a preliminary investigation of us and seven other telecommunication companies based onallegations of price-fixing of SMS and breach of Article 5 of the Anti-monopoly Law (Law No. 5/1999). After preliminary investigations conducted by theKPPU, the KPPU sent a summons letter to us and the seven other telecommunication companies for a hearing session. On December 14, 2007, the KPPUcommenced the second stage of its investigation of all operators. If the KPPU believes that it requires further information from us, we may be summoned toappear before the KPPU or requested to provide such information. Under Indonesian law, the KPPU is required to complete the second stage of investigationwithin 60 business days. This second investigation will be followed by a 30-business day decision-making period. We expect a decision to be rendered in May2008.

If we and the other operators are found liable for price-fixing, we and the operators may be ordered to terminate or abandon the perceived minimum pricearrangement and to pay fines of up to Rp25.0 billion. Such a decision may also trigger a class action suit against us, in the event that the KPPU’s decisionstipulates that this price fixing caused consumer loss, as we experienced in the KPPU cross ownership case. Any of the above factors could have an adverseeffect on our business, reputation and profitability.

Risks Relating to our Cellular Services Business

We may be unable to execute our cellular network expansion in a timely manner, at all or as planned, and such delay or failure may adversely affect ourcellular services business, results of operations and prospects

In late 2003, we merged with our legacy subsidiaries, Satelindo and PT Indosat Multi Media Mobile (“IM3”), which each operated a separate cellularnetwork in Indonesia. In an effort to increase our subscriber base, improve our service quality and reduce our operating expenses, we undertook a program ofcellular network integration. During the network integration and optimization process, we experienced periods of cellular service interruptions and inconsistentcellular service quality and network coverage. We completed the integration of the legacy network platforms by the end of 2005 and the network optimization inthe first quarter of 2006. However, there may still be some residual risks relating to this network optimization.

We currently plan capital expenditures of approximately US$1.2 billion in 2008 with approximately 80% to 85% of such amount to be allocated toexpenditures related to our cellular network. We expect these capital expenditures to include approximately 3,000 new BTSs to expand our coverage zones andfor capacity expansion. We plan to install such BTSs using both internal resources and “turn-key” projects carried out by outside vendors. We cannot assure youthat our network expansion targets will be achieved due to the possibility of failures in our internal resources or from our outside vendors.

Failure to achieve our network expansion target may affect and limit our network capacity and quality, which may adversely impact our businesses,financial condition, results of operations and prospects. Moreover, we may have more difficulty competing with our competitors in providing network coverageand services to our customers.

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Table of ContentsCompetition from industry incumbents and new market entrants may adversely affect our cellular services business

Competition among cellular service providers in Indonesia is based on various factors, including pricing, network quality and coverage, the range ofservices and features offered and customer service. Our cellular services business competes primarily against Telkomsel and Excelcomindo. Several othercellular service providers also provide cellular services in Indonesia. In addition to current cellular service providers, the Ministry of Communication andInformation Technology may license additional cellular service providers in the future, and such new entrants may compete with us. For instance, PT HutchisonCharoen Pokphand Telekomunikasi and PT Natrindo Telepon Seluler, launched their cellular services in the first quarter of 2007 and Smart Telekom launched itscellular services in mid-2007. It is unclear what impact, if any, such new market entrants will have on our business, financial condition, results of operations andprospects. Moreover, we, together with our current competitors, may also be subject to competition from providers of new telecommunications services usingnew technology and the convergence of various telecommunications services. New and existing cellular service providers may significantly increase subscriberacquisition costs by offering more attractive product and service packages, resulting in higher churn rates, lower ARPU or a reduction, or slower growth, of ourcellular subscriber base.

In addition, although the Government has allocated all available GSM 900 and 1800 spectrum, we cannot assure you that additional spectrum will notbecome available in the future or that the Government will not reallocate existing spectrum from existing cellular service providers, including us. If we fail toutilize our spectrum capacity efficiently, or if we cannot finance the incremental capital expenditures necessary to utilize our spectrum capacity successfully asand when needed, we may experience difficulty attracting and retaining cellular subscribers, which could have a material adverse effect on our cellular servicesbusiness. To the extent our current or future competitors in GSM cellular services obtain additional spectrum capacity, our competitive position, cellular servicesbusiness, financial condition, results of operations and prospects could be adversely affected.

In early 2006, the Government announced the tender to all telecommunications operators of three blocks of 5 MHz 3G spectrum. PT Hutchison CharoenPokphand Telekomunikasi and PT Natrindo Telepon Seluler, had previously obtained 3G spectrum licenses and were not allowed to participate in the mostrecent tender process. Ultimately, we were awarded one 3G spectrum license for 5 MHz of paired spectrum for an up-front fee of Rp320.0 billion. Under thelicense, we were required to initiate 3G service in at least two areas, Jakarta and Surabaya and their surrounding areas, and to provide coverage for 10% of thepopulation in each of these regions by 2006, 20% by 2007, and 30% by 2009. The license also requires us to initiate 3G service in additional areas on anincremental basis within the next five years. Our primary competitors, Telkomsel and Excelcomindo, were also awarded 3G licenses. As a result, there arecurrently five telecommunications operators in Indonesia for 3G services and new licenses may be awarded to allocate remaining 3G spectrum. Telkomsel andExcelcomindo launched their 3G services in late 2006. Under the terms of our license, we were required to complete our 3G network expansion to providenetwork coverage to 20% of the population of Jakarta and Surabaya and 10% of the population in West Java, Yogjakarta and North Sumatra by the end of 2007.We cannot assure you that we will be able to continue our 3G network expansion as planned or successfully complete the population coverage levels mandatedby the Government. Moreover, as the Government has not issued guidance on how to calculate percentages of population coverage, it remains unclear whether ornot we have fulfilled these requirements under our license. Failure to complete our 3G network expansion could result in an increase in our performance bond forthe license or a fine by the Government for non-compliance with the license terms and may adversely affect our business, financial condition, results ofoperations and prospects.

We face competition from our competitors’ fixed wireless services, which may have a material adverse effect on our cellular and fixed telecommunicationsservices businesses

In December 2002, Telkom introduced TelkomFlexi in Surabaya (East Java), Denpasar (Bali) and Balikpapan (East Kalimantan) using CDMA2000 1xfixed wireless technology. In May 2003, Telkom expanded TelkomFlexi to include the Jakarta area, and Bakrie Telecom, has launched a similar service forJakarta, Banten and West Java

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Table of Contentssince 2004. Telkom has since expanded TelkomFlexi into more than 250 cities nationwide. Telkom applies PSTN telephone tariffs for its fixed wireless service,which tariffs are substantially lower than those applied to cellular services, and pays lower regulatory fees than those applied to cellular services. Fixed wirelessservices using CDMA2000 1x technology possess mobility and features similar to those offered by cellular providers within one area code. Fixed wirelessservice quality may exceed GSM cellular service quality due to more efficient spectrum usage. We cannot assure you that the Ministry of Communication andInformation Technology will not take affirmative steps to encourage the network build-out of fixed wireless networks.

The introduction and availability of fixed wireless services and other similar technologies has increased competition based on price and product andservice packages among cellular service providers. Fixed wireless services, particularly those offered without significant regulatory restrictions regardingmobility and a system to equalize regulatory fees and tariffs, may have a material adverse effect on our business, financial condition, results of operations andprospects, resulting in, among other things, higher churn rates, lower ARPUs, slower growth in total cellular subscribers and increased subscriber acquisitioncosts. Since we introduced our StarOne fixed wireless service in May 2004, we have expanded the service to 37 cities and plan to expand such services to certainother cities. However, competition from Telkom, Bakrie Telecom, and other existing fixed wireless services providers that compete directly with us may causeprices to decline for such services and inhibit our ability to increase our total number of fixed wireless subscribers and to expand our fixed wireless servicesbusiness. Recently, new nationwide fixed wireless services licenses granted to Bakrie Telecom and Mobile-8 have resulted in more aggressive promotion of fixedwireless services in their existing and new areas of coverage. If competitors such as Telkomsel and Exelcomindo are granted fixed wireless services licenses bythe Government, this competition may continue to intensify and may adversely affect our business, financial condition, results of operations and prospects.

Cellular network congestion and limited spectrum availability could limit our cellular subscriber growth and cause reductions in our cellular service quality

The rapid growth of our cellular subscriber base, together with increasing demand, has led to high cellular usage, particularly in dense urban areas. Theavailable spectrum for use by a cellular network effectively limits its capacity. As a result, radio frequency engineering techniques, including a combination ofmacro, micro and indoor cellular designs, are needed to increase “erlang per square kilometer” and to maintain cellular network quality despite radio frequencyinterference and tighter radio frequency re-use patterns. Such radio frequency techniques have been deployed in dense urban environments such as Hong Kong,and we intend

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